<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION REPORT FROM _____ TO _____
Commission file number 0-23619
TARPON COAST BANCORP, INC.
--------------------------
(Exact name of small business issuer as specified in its charter)
Florida 65-0772718
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1490 Tamiami Trail
------------------
Port Charlotte, FL 33948
(Address of principal executive offices)
941-629-8111
------------
(Issuer's telephone number)
Securities registered pursuant to section 12(b) of the Exchange Act: None
Securities registered pursuant to section 12(g) of the Exchange Act: Common
Stock, $. 10 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the common stock of the registrant held by
non-affiliates of the registrant on March 1, 2000 was $8,544,284. As of such
date no organized trading market existed for the common stock of the registrant.
The aggregate market value is based upon the $7.88 in book value per share of
the common stock of the registrant at December 31, 1999. Solely for the purposes
of this response, executive officers, directors and beneficial owners of more
than five percent of the Company's common stock are considered the affiliates of
the Company at that date.
The number of shares outstanding of the issuer's common stock, as of March 1,
2000: 1,182,151 shares of $.10 par value common stock.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1999 Annual Report to Shareholders are incorporated
by reference in answer to Items 6, 7, and 8 of Part II of this report. The
Registrant's definitive Proxy Statement for its Annual Meeting of Shareholders
to be held in 2000 is incorporated by reference in answer to Part III of this
report.
<PAGE> 3
PART I
ITEM 1. BUSINESS
Tarpon Coast Bancorp, Inc. (the "Company") is a registered bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHC Act"),
and owns 100% of the outstanding capital stock of the Tarpon Coast National Bank
("Bank"). The Company was incorporated under the laws of the State of Florida in
August 1997. The Company serves as a mechanism to enhance the Bank's ability to
serve its customers' requirements for financial services. The holding company
structure provides flexibility for expansion of the Company's banking business
through acquisition of other financial institutions and provision of additional
banking-related services, which the traditional commercial bank may not provide
under present laws.
The Bank is full service commercial bank, without trust powers. The
Bank offers a full range of interest bearing and non-interest bearing accounts,
including commercial and retail checking accounts, negotiable order of
withdrawal ("NOW") accounts, public funds accounts, money market accounts,
individual retirement accounts, regular interest bearing statement savings
accounts, certificates of deposit, daily repurchase agreements, business
accounts (offering account analysis on all commercial relationships), commercial
loans, real estate loans and consumer loans. In addition, the Bank provides such
consumer services as notary services, photocopying, signature guarantees,
incoming and outgoing collections, travelers checks, U.S. Bonds, cashiers
checks, wire transfer services, coupon collection, foreign exchange, utility
bill payments and credit references. Moreover, safe deposit boxes, custodial
services, ACH processing and account reconciliation, overdraft checking,
commercial account analysis, night depository service, courier service and
automatic teller services are available.
MARKET AREA AND COMPETITION
The Southwest Florida area has experienced considerable growth over the
past decade. Competition among financial institutions in the Bank's market areas
is intense, with other financial institutions having far greater financial
resources than those available to the Company.
The primary service area for the Bank encompasses the Punta Gorda
Municipal Statistical Area, including the community of Port Charlotte, Charlotte
County, as well as the City of North Port in Sarasota County. Most of the
banking offices in the Bank's market area are branches of or are affiliated with
major holding companies in North Carolina, Georgia, Alabama and other areas of
Florida and the nation.
The Bank competes with existing area financial institutions other than
commercial banks and savings and loan associations, including insurance
companies, consumer finance companies, brokerage houses, credit unions and other
business entities which have recently been expanding to serve the traditional
banking markets. Due to the rapid growth of Southwest Florida, it is anticipated
that additional competition will continue from new entrants to the market.
1
<PAGE> 4
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND
INTEREST DIFFERENTIAL
The following is a presentation of the average consolidated balance
sheets of the Company for the year ended December 31, 1999 and for the period
from June 1, 1998 (the date the Company commenced its banking operations)
through December 31, 1998. This presentation includes all major categories of
interest-earning assets and interest bearing liabilities:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
- ------
Cash and Due from Banks $ 1,501,666 $ 866,293
----------- -----------
Federal Funds Sold 3,497,452 4,313,893
Taxable Securities 9,766,239 6,710,512
Net Loans 17,041,567 2,533,323
----------- -----------
Total Earning Assets 30,305,258 13,557,728
----------- -----------
Other Assets 3,160,508 1,704,254
----------- -----------
Total Assets $34,967,432 $16,128,275
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-Interest Bearing Deposits $ 3,489,511 $ 1,322,931
Savings Deposits 6,210,677 518,707
Time Deposits 9,529,437 3,064,775
Other Interest Bearing Deposits 3,504,667 939,134
Other Borrowings 2,488,630 227,551
Other Liabilities 108,030 32,824
----------- -----------
Total Liabilities 25,330,952 6,105,922
Stockholders' Equity 9,636,480 10,022,353
----------- -----------
Total Liabilities and Stockholders' Equity $34,967,432 $16,128,275
=========== ===========
</TABLE>
The following is an analysis of the net interest earnings of the
Company for the years ended December 31, 1999 and 1998 with respect to each
major category of interest-earning asset and each major category of
interest-bearing liabilities. Yield calculations for 1998 have been annualized
to portray results of a full fiscal year.
<TABLE>
<CAPTION>
1999
ASSETS AVERAGE AMOUNT INTEREST EARNED AVERAGE YIELD NET YIELD
- ------ -------------- --------------- ------------- ---------
<S> <C> <C> <C> <C>
Investment Securities $ 9,766,239 $ 572,014 5.86%
Federal Funds Sold 3,497,452 172,964 4.95%
Net Loans 17,041,567 1,418,542 8.32%
---------- --------- ----
Total Earning Assets $30,305,258 $2,163,520 7.14% 4.01%
=========== ========== ==== ====
</TABLE>
<TABLE>
<CAPTION>
ASSETS AVERAGE AMOUNT INTEREST PAID AVERAGE YIELD
- ------ -------------- ------------- -------------
<S> <C> <C> <C>
Savings Deposits $ 6,210,677 $266,810 4.30%
Time Deposits 9,529,437 480,286 5.04%
Other Interest Bearing Deposits 3,504,667 93,883 2.68%
Other Borrowings 2,488,630 107,116 4.30%
--------- ------- ----
Total Interest Bearing Liabilities $21,733,411 $948,095 4.36%
=========== ======== ====
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
1998
ASSETS AVERAGE AMOUNT INTEREST EARNED AVERAGE YIELD NET YIELD
- ------ -------------- --------------- ------------- ---------
<S> <C> <C> <C> <C>
Investment Securities $ 6,710,512 $233,963 5.98%
Federal Funds Sold 4,313,893 142,785 5.67%
Net Loans 2,581,579 148,513 9.86%
--------- ------- ----
Total Earning Assets $13,605,984 $525,261 6.62% 4.96%
=========== ======== ==== ====
</TABLE>
<TABLE>
<CAPTION>
ASSETS AVERAGE AMOUNT INTEREST PAID AVERAGE YIELD
- ------ -------------- ------------- -------------
<S> <C> <C> <C>
Savings Deposits $ 518,707 $ 8,340 2.76%
Time Deposits 3,064,775 97,275 5.44%
Other Interest Bearing Deposits 939,134 21,976 4.01%
Other Borrowings 227,551 4,314 4.55%
------- ----- ----
Total Interest Bearing Liabilities $4,750,167 $131,905 4.76%
========== ======== ====
</TABLE>
For purposes of these analyses, non-accruing loans, if any, are
included in the average balances and tax exempt income, to the extent included
in the amounts above, is not reflected on a tax equivalent basis. Loan fees
included in interest earned are not material to the presentation.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The effect of changes in average balances (volume) and rates on interest income,
interest expense and net interest income, for the period indicated, is shown
below. The effect of a change in average balance has been determined by applying
the average rate in the earlier period to the change in the average balance of
the later period, as compared with the earlier period. The effect of a change in
the average rate has been determined by applying the average balance in the
earlier period to the change in the average rate in the later period, as
compared with the earlier period. Changes resulting from average balance/rate
variances are included in changes resulting from volume. As results for 1998
only comprise seven months of operations, the analysis has been adjusted to
reflect annualized results for that year.
YEAR ENDED DECEMBER 31,
1999 COMPARED TO 1998
INCREASE (DECREASE) DUE TO
<TABLE>
<CAPTION>
VOLUME RATE CHANGE
----------- --------- -----------
<S> <C> <C> <C>
Interest earned on:
Investment securities $ 181,713 $ (8,748) $ 172,965
Federal funds sold (46,091) (24,480) (70,571)
Net loans 1,418,816 (253,579) 1,165,237
----------- --------- -----------
Total interest income 1,554,438 (286,807) 1,267,631
----------- --------- -----------
Interest paid on:
Savings deposits 156,094 96,491 252,585
Other deposits 458,727 (87,953) 370,774
Borrowings 73,113 26,645 99,758
----------- --------- -----------
Total interest expense 687,934 35,183 723,117
----------- --------- -----------
Change in Net interest income $ 866,504 $(321,990) $ 544,514
=========== ========= ===========
</TABLE>
3
<PAGE> 6
LOAN PORTFOLIO
The Company engages, through the Bank, in a full complement of lending
activities, including commercial, consumer/installment and real estate loans.
The Company's commercial lending is directed principally towards
businesses whose demands for funds fall within the Bank's legal lending limit
and are potential deposit customers. This category of loans includes loans made
to individual, partnership or corporate borrowers, and obtained for a variety of
business purposes. Particular emphasis is placed on loans to small and
medium-sized businesses. A majority of the commercial loans are secured by real
estate mortgages. The Company's real estate loans consist of residential and
commercial first mortgage loans, second mortgage financing and construction
loans.
The Company's consumer loans consist primarily of installment loans to
individuals for personal, family and household purposes, including automobile
loans to individuals and pre-approved lines of credit. This category of loans
also includes loans secured by second mortgages on the residences of borrowers
for a variety of purposes including home improvements, education and other
personal expenditures.
The Company has a correspondent relationship with the Independent
Bankers Bank of Florida ("IBBF"), whereby the Company solicits the sale and
purchase of loan participations. Participations purchased from IBBF, if any, are
entered into using the same underwriting criteria that would be applied if the
Company had originated the loan. This would include credit and collateral
analyses and maintenance of a complete credit file on each purchased
participation that is consistent to the credit files maintained by the Company
on its own customers.
The following is an analysis of maturities of loans as of December 31, 1999:
<TABLE>
<CAPTION>
DUE IN DUE IN DUE AFTER
TYPE OF LOAN 1 YEAR OR LESS 1 TO 5 YEARS 5 YEARS TOTAL
- ------------ -------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural $1,669,039 $ 4,598,802 $ 1,267,551 $ 7,535,392
Commercial real estate 972,424 5,584,626 2,240,513 8,797,563
Residential real estate 177,218 1,759,850 6,761,748 8,698,816
Consumer loans 260,398 3,803,924 294,318 4,358,640
---------- ----------- ----------- -----------
Total $3,079,079 $15,747,202 $10,564,130 $29,390,411
========== =========== =========== ===========
</TABLE>
The following table presents various categories of loans contained in
the Company's loan portfolio and the total amount of all loans at December 31,
1999 and 1998.
<TABLE>
<CAPTION>
TYPE OF LOAN DECEMBER 31,
-----------------------------
1999 1998
---- ----
<S> <C> <C>
Commercial, financial and agricultural..... $ 7,535,392 $4,022,305
Commercial real estate .................... 8,797,563 1,722,547
Residential real estate ................... 8,698,816 552,113
Consumer loans ............................ 4,358,640 1,070,417
----------- ----------
Subtotal .................................. 29,390,411 7,367,382
Allowance for
possible loan losses ...................... 454,576 154,000
----------- ----------
Net loans ................................. $28,935,835 $7,213,382
=========== ==========
</TABLE>
The Company does not presently have, nor intends to implement, a
rollover policy with respect to its loan portfolio. All loans are recorded
according to original terms, and demand loans, overdrafts and loans having no
stated repayment terms or maturity are reported as due in one year or less.
4
<PAGE> 7
At December 31, 1999, the amount of loans due after one year with
predetermined interest rates totaled approximately $16,709,000 while the amount
of loans due after one year with floating interest rates totaled approximately
$9,602,000.
Accrual of interest is discontinued on a loan when management of the
Bank determines, after consideration of economic and business factors affecting
collection efforts, that collection of interest is doubtful.
At December 31, 1999 and 1998, there were no loans which were accounted
for on a non-accrual basis, no loans which were contractually past due 90 days
or more as to principal or interest payments, and no loans which would be
defined as troubled debt restructurings.
SUMMARY OF LOAN LOSS EXPERIENCE
An analysis of the Company's allowance for possible loan losses and
loan loss experience (charge-offs) is furnished in the following table for the
years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
TYPE OF LOAN 1999 1998
- ------------ ---- ----
<S> <C> <C>
Balance at beginning of period $154,000 $ 0
Charge-offs:
Consumer 49,456 0
Commercial 0 0
Residential 0 0
Recoveries:
Consumer 32 0
Commercial 0 0
Residential 0 0
Net charge-offs 49,424 0
Provision for losses charged to operations 350,000 154,000
------- -------
Balance at end of period $454,576 $154,000
======== ========
ASSET QUALITY RATIOS:
- ---------------------
Net charge-offs during the period to average loans
outstanding during the period 0.28% 0%
Allowance for loan losses to total loans 1.55% 2.09%
Allowance for loan losses to
non-performing assets Not Applicable Not Applicable
Non-performing loans to total loans 0% 0%
Non-performing assets to total assets 0% 0%
</TABLE>
5
<PAGE> 8
At December 31, 1999 and 1998 the allowance for possible loan losses was
generally allocated as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ -------------- ------ -------------
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $200,533 25.6% $107,125 54.6%
Commercial real estate 135,482 29.9% 29,935 23.4%
Residential real estate 64,513 29.6% 5,520 7.5%
Consumer 54,048 14.9% 11,420 14.5%
-------- ----- -------- -----
Total $454,576 100.0% $154,000 100.0%
======== ===== ======== =====
</TABLE>
Although the allowance for loan losses was determined by category of
loans, the entire allowance is available to absorb losses from any category.
The allowance for loan losses is established based upon management's
evaluation of the potential losses in its loan portfolio. In analyzing the
adequacy of the allowance, management considers its review as well as the
results of independent internal and external credit reviews, changes in the
composition and volume of the loan portfolio, levels of non-performing and
charged-off loans, local and national economic conditions, and other factors.
INVESTMENTS
The Company invests primarily in obligations of the United States or
obligations guaranteed as to principal and interest by the United States and
other taxable securities. The Bank enters into Federal Funds transactions with
its principal correspondent banks, and primarily acts as a net seller of such
funds. The sale of Federal Funds amounts to a short-term loan from the Bank to
other banks.
The following table presents, at December 31, 1999 and 1998, the carrying value
of the Company's investments:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
INVESTMENT CATEGORY 1999 1998
- ------------------- ---------- ----------
<S> <C> <C>
Obligations of U.S. Treasury and other
U.S. Government Agencies $9,104,592 $8,370,787
State and political subdivisions 0 0
Other securities 363,314 281,700
---------- ----------
Total $9,467,906 $8,652,487
========== ==========
</TABLE>
The following table indicates the respective maturities and weighted
average yields of securities available for sale as of December 31, 1999:
<TABLE>
<CAPTION>
AMOUNT WEIGHTED AVERAGE YIELD
------ ----------------------
<S> <C> <C>
Obligations of U.S. Treasury
and other U.S. Government Agencies:
0 - 1 Yr $1,364,575 5.22%
1 - 5 Yrs 7,271,112 5.84%
5 - 10 Yrs 468,905 6.29%
Other securities:
No stated maturity 363,314 5.31%
---------- ----
Total $9,467,906 5.75%
========== ====
</TABLE>
The weighted average yields for tax exempt securities, if applicable, are
computed on a tax equivalent basis.
6
<PAGE> 9
DEPOSITS
The Banks offer a full range of interest bearing and non-interest
bearing accounts, including commercial and retail checking accounts, negotiable
order of withdrawal ("NOW") accounts, public funds accounts, money market
accounts with limited transactions, individual retirement accounts, including
Keogh plans with stated maturities, regular interest bearing statement savings
accounts and certificates of deposit with fixed and variable rates and a range
of maturity date options. The sources of deposits are residents, businesses and
employees of businesses within the Bank's market areas, obtained through the
personal solicitation of the Bank's officers and directors, direct mail
solicitation and advertisements published in the local media. The Bank pays
competitive interest rates on time and savings deposits. In addition, the Bank
has implemented a service charge fee schedule competitive with other financial
institutions in the Bank's market areas, covering such matters as maintenance
fees on checking accounts, per item processing fees on checking accounts,
returned check charges and the like.
The following table presents, for the years ended December 31, 1999 and
1998, the average amount of and average rate paid on each of the following
deposit categories. Average rates paid calculations for 1998 have been
annualized to portray results of a full fiscal year.
<TABLE>
<CAPTION>
DEPOSIT CATEGORY AVERAGE AMOUNT AVERAGE RATE PAID
- ---------------- ------------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Non-interest-bearing
demand deposits $3,489,483 $1,322,931 N/A N/A
Savings deposits $6,210,677 $ 518,707 4.30% 2.76%
Time deposits $9,529,437 $3,064,775 5.04% 5.44%
Other interest bearing deposits $3,504,667 $ 939,134 2.68% 4.01%
</TABLE>
The following table indicates amounts outstanding of time certificates
of deposit of $100,000 or more and their respective maturities as of December
31, 1999:
<TABLE>
<CAPTION>
TIME CERTIFICATES
OF DEPOSITS
-----------------
<S> <C>
3 months of less $ 650,349
4 - 6 months 100,000
7 -12 months 840,161
Over 12 months 400,000
----------
Total $1,990,510
</TABLE>
RETURN ON EQUITY AND ASSETS
Returns on average consolidated assets and average consolidated equity
for the years ended December 31, 1999 and 1998 (annualized) were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Return on Average Assets ............. (2.33)% (4.95)%
Return on Average Equity ............. (8.45)% (6.45)%
Average Equity to Average Assets Ratio 27.56 % 76.84 %
</TABLE>
SHORT-TERM BORROWINGS
The Banks enter into various arrangements with customers to sell securities
under agreements to repurchase ("Repurchase Agreements"). The Repurchase
Agreements have been accounted for as short-term borrowings with the obligation
to repurchase the securities reflected as a non-deposit interest-bearing
liability. For the years ended December 31, 1999 and 1998, the Company had no
category of borrowing, for which the average balances outstanding during the
year amounted to 30 % or more of stockholders' equity.
7
<PAGE> 10
ASSET/LIABILITY MANAGEMENT
It is the objective of the Company to manage assets and liabilities to
provide a satisfactory, consistent level of profitability within the framework
of established cash, loan, investment, borrowing and capital policies. Certain
of the officers of the Banks are responsible for monitoring policies and
procedures that are designed to ensure acceptable composition of the
asset/liability mix, stability and leverage of all sources of funds while
adhering to prudent banking practices. It is the overall philosophy of
management to support asset growth primarily through growth of core deposits,
which include deposits of all categories made by individuals, partnerships and
corporations. Management of the Company seeks to invest the largest portion of
its assets in commercial, consumer and real estate loans.
The Bank's asset/liability mix is monitored on a monthly basis and a
quarterly report reflecting interest-sensitive assets and interest-sensitive
liabilities is prepared and presented to the Bank's Boards of Directors. The
objective of this policy is to control interest-sensitive assets and liabilities
so as to minimize the impact of substantial movements in interest rates on the
Bank's earnings.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Interest Sensitivity," in the Company's 1999 Annual
Report for an analysis of rate sensitive assets and liabilities.
CORRESPONDENT BANKING
Correspondent banking involves the provision of services by one bank to
another bank that cannot provide that service for itself from an economic or
practical standpoint. The Bank is required to purchase correspondent services
offered by larger banks, including check collections, purchase of Federal Funds,
security safekeeping, investment services, coin and currency supplies, overline,
and liquidity loan participations and sales of loans to or participations with
correspondent banks.
The Bank sells loan participations to correspondent banks with respect
to loans that exceed the Bank's lending limits. Management of the Bank has
established a correspondent relationship with the Independent Bankers Bank of
Florida, Orlando, Florida and SunTrust Bank, Central Florida, N.A.
EMPLOYEES
At December 31, 1999, the Company employed 20 persons full-time and 1
person part-time, including 8 officers. The Company will hire additional persons
as needed on a full-time and part-time basis, including additional tellers and
customer service representatives to support its growth objectives.
MONETARY POLICIES
The results of operations of the Company are affected by credit
policies of monetary authorities, particularly the Federal Reserve Board. The
instruments of monetary policy employed by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member banks may pay on
time and savings deposits. In view of changing conditions in the national
economy and in the money markets, as well as the effect of action by monetary
and fiscal authorities, including the Federal Reserve Board, no prediction can
be made as to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of the Company.
SUPERVISION AND REGULATION
Banks and their holding companies, and many of their affiliates, are
extensively regulated under both federal and state law. The following is a brief
summary of certain statutes, rules, and regulations affecting the Company and
the Bank. This summary is qualified in its entirety by reference to the
particular statutory and regulatory provisions referred to below and is not
intended to be an exhaustive description of the statutes or regulations
applicable to the business of the Company and the Bank. Any change in the
applicable law or regulation may have a material effect on the business and
prospects of the Company and the Bank. Supervision, regulation, and examination
of banks by regulatory agencies are intended primarily for the protection of
depositors, rather than shareholders.
Bank Holding Company Regulation. The Company is a bank holding company
registered with the Federal Reserve under the BHC Act. As such, the Company is
subject to the supervision, examination and reporting requirements of the BHC
Act and the regulations of the Federal Reserve. The Company is required to
furnish to the Federal Reserve an annual report of its operations at
8
<PAGE> 11
the end of each fiscal year, and such additional information as the Federal
Reserve may require pursuant to the BHC Act. The BHC Act requires that a bank
holding company obtain the prior approval of the Federal Reserve before (i)
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any bank, (ii) taking any action that causes a bank to become a
subsidiary of the bank holding company, or (iii) merging or consolidating with
any other bank holding company.
The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of which
may be substantially to lessen competition or to tend to create a monopoly in
any section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy and consideration of convenience and needs issues includes the parties'
performance under the Community Reinvestment Act of 1977 (the "CRA"), both of
which are discussed below.
Banks are subject to the provisions of the CRA. Under the terms of the
CRA, the appropriate federal bank regulatory agency is required, in connection
with its examination of a bank, to assess such bank's record in meeting the
credit needs of the community served by that bank, including low- and
moderate-income neighborhoods. The regulatory agency's assessment of the bank's
record is made available to the public. Further, such assessment is required of
any bank which has applied to (i) charter a national bank, (ii) obtain deposit
insurance coverage for a newly chartered institution, (iii) establish a new
branch office that will accept deposits, (iv) relocate an office, or (v) merge
or consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution. In the case of a bank holding company
applying for approval to acquire a bank or other bank holding company, the
Federal Reserve will assess the record of each subsidiary bank of the applicant
bank holding company, and such records may be the basis for denying the
application.
Gramm-Leach-Bliley Act. On November 12, 1999, the Gramm-Leach-Bliley
Act was signed into law which reforms and modernizes certain areas of financial
services regulation. The law permits the creation of new financial services
holding companies that can offer a full range of financial products under a
regulatory structure based on the principle of functional regulation. The
legislation eliminates the legal barriers to affiliations among banks and
securities firms, insurance companies, and other financial services companies.
The law also provides financial organizations with the opportunity to structure
these new financial affiliations through a holding company structure or a
financial subsidiary. The new law reserves the role of the Federal Reserve Board
as the supervisor for bank holding companies. At the same time, the law also
provides a system of functional regulation which is designed to utilize the
various existing federal and state regulatory bodies. The law also sets up a
process for coordination between the Federal Reserve Board and the Secretary of
the Treasury regarding the approval of new financial activities for both bank
holding companies and national bank financial subsidiaries.
The law also includes a minimum federal standard of financial privacy.
Financial institutions are required to have written privacy policies that must
be disclosed to customers. The disclosure of a financial institution's privacy
policy must take place at the time a customer relationship is established and
not less than annually during the continuation of the relationship. The act also
provides for the functional regulation of bank securities activities. The law
repeals the exemption that banks were afforded from the definition of "broker",
and replaces it with a set of limited exemptions that allow the continuation of
some historical activities performed by banks. In addition, the act amends the
securities laws to include banks within the general definition of dealer.
Regarding new bank products, the law provides a procedure for handling products
sold by banks that have securities elements. In the area of Community
Reinvestment Act ("CRA") activities, the law generally requires that financial
institutions address the credit needs of low-to-moderate income individuals and
neighborhoods in the communities in which they operate. Bank regulators are
required to take the CRA ratings of a bank or of the bank subsidiary of a
holding company into account when acting upon certain branch and bank merger and
acquisition applications filed by the institution. Under the law, financial
holding companies and banks that desire to engage in new financial activities
are required to have satisfactory or better CRA ratings when they commence the
new activity.
Most of the provisions of the law took effect on November 12, 1999,
with other provisions being phased in over a one or two year period thereafter.
It is anticipated that the effects of the law, while providing additional
flexibility to bank holding companies and banks, may result in additional
affiliation of different financial services providers, as well as increased
competition, resulting in lower prices, more convenience, and greater financial
products and services available to customers.
Bank Regulation. The Bank is chartered under the National Banking Act.
The Bank's deposits are insured by the FDIC to the extent provided by law. The
Bank is subject to comprehensive regulation, examination and supervision by the
OCC. The Bank is also subject to other laws and regulations applicable to banks.
Such regulations include limitations on loans to a single borrower
9
<PAGE> 12
and to its directors, officers and employees; restrictions on the opening and
closing of branch offices; the maintenance of required capital and liquidity
ratios; the granting of credit under equal and fair conditions; and the
disclosure of the costs and terms of such credit. The Bank is examined
periodically by the OCC, to whom the Bank submits periodic reports regarding its
financial condition and other matters. The OCC has a broad range of powers to
enforce regulations under its jurisdiction, and to take discretionary actions
determined to be for the protection and safety and soundness of banks, including
the institution of cease and desist orders and the removal of directors and
officers. The OCC also has the authority to approve or disapprove mergers,
consolidations, and similar corporate actions.
Under federal law, federally insured banks are subject, with certain
exceptions, to certain restrictions on any extension of credit to their parent
holding companies or other affiliates, on investment in the stock or other
securities of affiliates, and on the taking of such stock or securities as
collateral from any borrower. In addition, banks are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit or the
providing of any property or service.
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") contains capital standards for bank holding companies and banks
civil and criminal enforcement provisions. FIRREA also provides that a
depository institution insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with (i) the default of a commonly controlled FDIC insured depository
institution, or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC insured institution in danger of default.
The FDIC Improvement Act of 1991 ("FDICIA") enacted a number of
provisions addressing the safety and soundness of deposit insurance funds,
supervision, accounting, and prompt regulatory action, and also implemented
other regulatory improvements. Annual full-scope, on-site examinations are
required of all insured depository institutions. The cost for conducting an
examination of an institution may be assessed to that institution, with special
consideration given to affiliates and any penalties imposed for failure to
provide information requested. Insured state banks also are precluded from
engaging as principal in any type of activity that is impermissible for a
national bank, including activities relating to insurance and equity
investments. FDICIA also recodified current law restricting extensions of
credit to insiders under the Federal Reserve Act.
Transactions with Affiliates. There are various legal restrictions on
the extent to which the Company and any future nonbank subsidiaries can borrow
or otherwise obtain credit from the Bank. There also are legal restrictions on
the Bank's purchase of or investments in the securities of and purchases of
assets from the Company and any of its future nonbank subsidiaries, the Bank's
loans or extensions of credit to third parties collateralized by the securities
or obligations of the Company and any of its future nonbank subsidiaries, the
issuance of guarantees, acceptances, and letters of credit on behalf of the
Company and any of its future nonbank subsidiaries, and certain bank
transactions with the Company and any of its future nonbank subsidiaries, or
with respect to which the Company and nonbank subsidiaries act as agent,
participate or have a financial interest. Subject to certain limited
exceptions, the Bank may not extend credit to the Company or to any other
affiliate in an amount which exceeds 10% of the Bank's capital stock and
surplus and may not extend credit in the aggregate to such affiliates in an
amount which exceeds 20% of its capital stock and surplus. Further, there are
legal requirements as to the type, amount and quality of collateral which must
secure such extensions of credit transactions between the Bank and the Company
or such other affiliates, and such transactions must be on terms and under
circumstances, including credit standards, that are substantially the same or
at least as favorable to the Bank as those prevailing at the time for
comparable transactions with non-affiliated companies. Also, the Company and
its subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or
furnishing of services.
Dividends. Dividends from the Bank constitute the primary source of
funds for dividends to be paid by the Company. There also are various statutory
and contractual limitations on the ability of the Bank to pay dividends, extend
credit, or otherwise supply funds to the Company. As a national bank, the Bank
may not pay dividends from its paid-in surplus. All dividends must be paid out
of undivided profits then on hand, after deducting expenses, including reserves
for losses and bad debts. In addition, a national bank is prohibited from
declaring a dividend on its shares of common stock until its surplus equals its
stated capital, unless there has been transferred to surplus no less than
one-tenth of the bank's net profits of the preceding two consecutive half-year
periods (in the case of an annual dividend). The approval of the OCC is
required if the total of all dividends declared by a national bank in any
calendar year exceeds the total of its net profits for that year combined with
its retained net profits for the preceding two years, less any required
transfers to surplus. Florida law applicable to companies (including the
Company) provides that dividends may be declared and paid only if, after giving
it effect, (i) the company is able to pay its debts as they become due in the
usual course of business, and (ii) the company's total assets would be greater
than the sum of its total liabilities plus the amount that would be needed if
the company were to be dissolved at the time of the dividend to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the dividend.
10
<PAGE> 13
Capital Requirements. The federal bank regulatory authorities have
adopted risk-based capital guidelines for banks and bank holding companies that
are designed to make regulatory capital requirements more sensitive to
differences in risk profile among banks and bank holding companies. The
resulting capital ratios represent qualifying capital as a percentage of total
risk-weighted assets and off-balance sheet items. The guidelines are minimums,
and the federal regulators have noted that banks and bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain all ratios well in excess of
the minimums. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1 capital
includes common stockholders= equity, qualifying perpetual preferred stock, and
minority interests in equity accounts of consolidated subsidiaries, but
excludes goodwill and most other intangibles and excludes the allowance for
loan and lease losses. Tier 2 capital includes the excess of any preferred
stock not included in Tier 1 capital, mandatory convertible securities, hybrid
capital instruments, subordinated debt and intermediate term-preferred stock,
and general reserves for loan and lease losses up to 1.25% of risk-weighted
assets.
FDICIA contains "prompt corrective action" provisions pursuant to
which banks are to be classified into one of five categories based upon capital
adequacy, ranging from "well capitalized" to "critically undercapitalized" and
which require (subject to certain exceptions) the appropriate federal banking
agency to take prompt corrective action with respect to an institution which
becomes "significantly undercapitalized@ or Acritically undercapitalized".
The OCC has issued regulations to implement the "prompt corrective
action" provisions of FDICIA. In general, the regulations define the five
capital categories as follows: (i) an institution is "well capitalized" if it
has a total risk-based capital ratio of 10% or greater, has a Tier 1 risk-based
capital ratio of 6% or greater, has a leverage ratio of 5% or greater and is
not subject to any written capital order or directive to meet and maintain a
specific capital level for any capital measures; (ii) an institution is
"adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, has a Tier 1 risk-based capital ratio of 4% or greater, and has a
leverage ratio of 4% or greater; (iii) an institution is "undercapitalized" if
it has a total risk-based capital ratio of less than 8%, has a Tier 1
risk-based capital ratio that is less than 4% or has a leverage ratio that is
less than 4%; (iv) an institution is "significantly undercapitalized" if it has
a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based
capital ratio that is less than 3% or a leverage ratio that is less than 3%;
and (v) an institution is "critically undercapitalized" if its "tangible
equity" is equal to or less than 2% of its total assets. The OCC also, after an
opportunity for a hearing, has authority to downgrade an institution from "well
capitalized" to "adequately capitalized" or to subject an "adequately
capitalized" or "undercapitalized" institution to the supervisory actions
applicable to the next lower category, for supervisory concerns. The degree of
regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to (i) submit a capital restoration
plan; (ii) raise additional capital; (iii) restrict their growth, deposit
interest rates, and other activities; (iv) improve their management; (v)
eliminate management fees; or (vi) divest themselves of all or part of their
operations. Bank holding companies controlling financial institutions can be
called upon to boost the institutions' capital and to partially guarantee the
institutions' performance under their capital restoration plans. These capital
guidelines can affect the Company in several ways. After completion of this
offering, the Company's capital levels will be in excess of those required to
be maintained by a "well capitalized" financial institution. However, rapid
growth, poor loan portfolio performance, or poor earnings performance, or a
combination of these factors, could change the Company's capital position in a
relatively short period of time, making an additional capital infusion
necessary.
Additionally, FDICIA requires, among other things, that (i) only a
"well capitalized" depository institution may accept brokered deposits without
prior regulatory approval and (ii) the appropriate federal banking agency
annually examine all insured depository institutions, with some exceptions for
small, "well capitalized" institutions and state-chartered institutions
examined by state regulators. FDICIA also contains a number of consumer banking
provisions, including disclosure requirements and substantiative contractual
limitations with respect to deposit accounts.
Enforcement Powers. Congress has provided the federal bank regulatory
agencies with an array of powers to enforce laws, rules, regulations and
orders. Among other things, the agencies may require that institutions cease
and desist from certain activities, may preclude persons from participating in
the affairs of insured depository institutions, may suspend or remove deposit
insurance, and may impose civil money penalties against institution-affiliated
parties for certain violations.
Maximum Legal Interest Rates. Like the laws of many states, Florida
law contains provisions on interest rates that may be charged by banks and
other lenders on certain types of loans. Numerous exceptions exist to the
general interest limitations imposed by Florida law. The relative importance of
these interest limitation laws to the financial operations of the Bank will
vary from time to time, depending on a number of factors, including conditions
in the money markets, the costs and availability of funds, and prevailing
interest rates.
11
<PAGE> 14
Bank Branching. Banks in Florida are permitted to branch state wide.
Such branch banking by national banks, however, is subject to prior approval by
the OCC. Any such approval would take into consideration several factors,
including the bank's level of capital, the prospects and economics of the
proposed branch office, and other conditions deemed relevant by the OCC for
purposes of determining whether approval should be granted to open a branch
office. For information regarding legislation on interstate branching in
Florida, see "-- Interstate Banking" below.
Change of Control. Federal law restricts the amount of voting stock of
a bank holding company and a bank that a person may acquire without the prior
approval of banking regulators. The overall effect of such laws is to make it
more difficult to acquire a bank holding company and a bank by tender offer or
similar means than it might be to acquire control of another type of
corporation. Consequently, shareholders of the Company may be less likely to
benefit from the rapid increases in stock prices that may result from tender
offers or similar efforts to acquire control of other companies. Federal law
also imposes restrictions on acquisitions of stock in a bank holding company
and a state bank. Under the federal Change in Bank Control Act and the
regulations thereunder, a person or group must give advance notice to the
Federal Reserve before acquiring control of any bank holding company and the
OCC before acquiring control of any national bank (such as the Bank). Upon
receipt of such notice, the Federal Reserve or the OCC, as the case may be, may
approve or disapprove the acquisition. The Change in Bank Control Act creates a
rebuttable presumption of control if a member or group acquires a certain
percentage or more of a bank holding company's or state bank's voting stock, or
if one or more other control factors set forth in the Act are present.
Interstate Banking. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994, provides for nationwide interstate banking and
branching. Under the law, interstate acquisitions of banks or bank holding
companies in any state by bank holding companies in any other state are
permissible subject to certain limitations. Florida also has a law that allows
out-of-state bank holding companies (located in states that allow Florida bank
holding companies to acquire banks and bank holding companies in that state) to
acquire Florida banks and Florida bank holding companies. The law essentially
provides for out-of-state entry by acquisition only (and not by interstate
branching) and requires the acquired Florida bank to have been in existence for
at least three years. Interstate branching and consolidation of existing bank
subsidiaries in different states is permissible. A Florida bank also may
establish, maintain, and operate one or more branches in a state other than
Florida pursuant to an interstate merger transaction in which the Florida bank
is the resulting bank. An interstate merger transaction resulting in the
acquisition by an out-of-state bank of a Florida bank is not permitted unless
the Florida bank has been in existence and continuously operating, on the date
of the acquisition, for more than three years.
Effect of Governmental Policies. The earnings and businesses of the
Company and the Bank are affected by the policies of various regulatory
authorities of the United States, especially the Federal Reserve. The Federal
Reserve, among other things, regulates the supply of credit and deals with
general economic conditions within the United States. The instruments of
monetary policy employed by the Federal Reserve for those purposes influence in
various ways the overall level of investments, loans, other extensions of
credit, and deposits, and the interest rates paid on liabilities and received
on assets.
ITEM 2. PROPERTIES
The Company currently conducts its banking operations through its main
banking office located in the community of Port Charlotte, Charlotte County,
Florida, together with a leased temporary branch facility located in the city
of North Port, Sarasota County, Florida. The Company owns the land and premises
of its main banking facility, which is comprised of approximately 7,850 square
feet of office space on the 1.1 acre site.
The Company also owns a 0.82 acre site in the City of North Port,
Sarasota County, Florida, on which it is constructing a 3,400 square foot
branch office scheduled for occupancy in March 2000.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company
or either of the Banks is a party or of which any of their properties are
subject; nor are there material proceedings known to the Company to be
contemplated by any governmental authority; nor are there material proceedings
known to the Company, pending or contemplated, in which any director, officer
or affiliate or any principal security holder of the Company, or any associate
of any of the foregoing, is a party or has an interest adverse to the Company
or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter ended December 31,
1999 to a vote of security holders of the Company.
12
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 is hereby incorporated by reference
from the Company's 1999 Annual Report to Shareholders, page 7. The Annual
Report is filed as an exhibit to this report on Form 10-KSB.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by Item 6 is hereby incorporated by reference
from the Company's 1999 Annual Report to Shareholders, pages 2-6. The Annual
Report is filed as an exhibit to this report on Form 10-KSB.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 7 is hereby incorporated by reference
from the Company's 1999 Annual Report to Shareholders, pages 8-33. The Annual
Report is filed as an exhibit to this report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
13
<PAGE> 16
PART III
The information required by Part III of Form 10-KSB is, pursuant to
General Instruction (G) of Form 10-KSB, incorporated by reference from the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
relating to the Company's annual meeting of shareholders to be held in April
2000. The Company will within 120 days of the end of its fiscal year file with
the Securities and Exchange Commission a definitive proxy statement pursuant to
Regulation 14A.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Incorporated by reference.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed with or incorporated by reference
into this report. The exhibits which are denominated by an asterisk (*) were
previously filed as a part of a Registration Statement on Form SB-2 under the
Securities Act of 1933 for the Registrant, Registration No. 333-39609,
including amendments thereto.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
* 3.1 Articles of Incorporation
* 3.2 Bylaws
* 10.1 1997 Stock Option Plan and Form of Certificate**
* 10.2 Form of Employment Agreement between the Company and
Lewis S. Albert**
* 10.3 Form of Employment Agreement between the Company and
Todd H. Katz**
* 10.4 Form of Stock Purchase Warrant
13.1 1999 Annual Report to Shareholders
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule [Check if applicable] [X]
</TABLE>
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
fourth quarter of 1999.
- ---------------
** Represents a management contract of compensatory plan or arrangement
required to be filed as an exhibit.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Section 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TARPON COAST BANCORP, INC.
Date: March 13, 2000 By: /s/ Lewis S. Albert
----------------------------------------
Lewis S. Albert,
Chairman of the Board and
Chief Executive Officer
Date: March 13, 2000 By: /s/ George E. Cline
----------------------------------------
George E. Cline, Senior Vice
President and Chief Financial Officer
(principal financial and
accounting officer)
Pursuant to the requirements of the Securities Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Lewis S. Albert
- ----------------------------- Chairman of the Board and March 13, 2000
Lewis S. Albert Chief Executive Officer
/s/ Todd H. Katz
- ----------------------------- Vice-Chairman March 13, 2000
Todd H. Katz and President
/s/ Mark O. Asperilla M.D.
- ----------------------------- Director March 13, 2000
Mark O. Asperilla, M.D.
/s/ James R. Baker
- ----------------------------- Director March 13, 2000
James R. Baker
/s/ Billie A. Barger
- ----------------------------- Director March 13, 2000
Billie A. Barger
/s/ James C. Brown
- ----------------------------- Director March 13, 2000
James C. Brown
/s/ Gerald P. Flagel
- ----------------------------- Director March 13, 2000
Gerald P. Flagel
/s/ Gina D. Hahn
- ----------------------------- Director March 13, 2000
Gina D. Hahn
/s/ Larry A. Tenbusch
- ----------------------------- Director March 13, 2000
Larry A. Tenbusch
</TABLE>
15
<PAGE> 1
EXHIBIT 13.1
1999 Annual Report to Shareholders
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LETTER TO SHAREHOLDERS AND FRIENDS 1
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3
MARKET FOR COMMON STOCK 7
CONSOLIDATED BALANCE SHEETS 8
CONSOLIDATED STATEMENTS OF OPERATIONS 9
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12
INDEPENDENT AUDITORS' REPORT 32
CORPORATE INFORMATION 33
</TABLE>
ANNUAL MEETING
The Annual Meeting of Shareholders will
be held on Monday, April 24, 2000 at
5:00 P.M. at the Best Western Waterfront
Hotel in Punta Gorda, Florida
<PAGE> 3
TO OUR SHAREHOLDERS
AND FRIENDS:
1999 proved to be an exciting and rewarding year for your Company. Consistent
with our strategic initiative, substantial commitments were made of funds,
people and facilities to permit the Company to maximize its potential for
quality asset growth. This strategy produced significant increases in assets and
deposits, together with market share.
Founded in the tradition of a community bank, we remain dedicated to friendly,
personal service and to building relationships with our clients. From greeting
each customer by name to providing you with innovative products and services, we
take those extra steps necessary to provide the finest possible banking
experience. In the nineteen months in which the Bank has been open, the Company
has achieved total assets of $44.1 million, attracted over $34.1 million in
customer deposits, and generated in excess of $36 million in net loan demand of
which $29.4 million had been funded by year-end. We believe this is a strong
indicator of how our concept of commitment to customer service and community has
been accepted in our target markets.
Moreover, during 1999 we achieved the following:
o Total assets grew by $21.3 million or $93%.
o Earning assets grew by 96% to $38.4 million.
o Aggregate customer balances, including customer repurchase agreement
accounts, increased $21.5 million or 170%.
o We took occupancy of our permanent banking facility in February and, in
June, established our first branch office in a temporary facility in the
City of North Port in Sarasota County.
Our expansion to North Port is noteworthy for a number of reasons. First, it is
consistent with our strategic initiative to grow the deposit and asset base of
the Company through entry into surrounding communities, providing for the utmost
in access to services, facilities and personnel. Secondly, consistent with that
of our main banking facility, the Branch's permanent facility is located in the
busiest shopping traffic area in the City to provide our customers with the most
convenient banking experience available. And finally, consistent with our
commitment to outstanding service and community, we have staffed the North Port
office with seasoned local banking professionals known to their community, led
by its Senior Vice President, Terry L. Miller.
Prior to joining the Company, Mr. Miller had been a senior branch executive for
a community bank in North Port since 1989 and has the distinction of being named
the North Port Business Person of the Year in 1999 by the North Port Chamber of
Commerce. We will continue to seek quality opportunities such as this in our
continuing expansion plans, matching the market with the best in location and
personnel.
As expected and consistent with the results of de novo banking institutions, the
investment in expansion and growth comes at the expense of earnings. Net loss
for the year amounted to $813,000 as the Company continues to grow its asset
base in order to cover its cost structure. Significant to this loss is the
provision of $350,000 for potential loan losses, bringing the allowance for
possible loan losses to $454,000 at December 31, 1999. The allowance, which
represents 1.55% of total loans, is well in excess of peer-group averages and
reflects our conservative approach to managing the financial affairs of the
Bank. This is borne out by the credit quality of our loan portfolio. At December
31, 1999, the Bank did not have any past-due or non-performing loans. We
encourage you to read the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of this report for more details on
the overall financial performance of the Company.
We encourage you to attend our Annual Shareholders' Meeting, which will be held
on Monday April 24, 1999 at 5:00 P.M. at the Best Western Waterfront Hotel,
Punta Gorda, Florida. This is an opportunity for us to showcase the Company and
the Bank, answer any questions you may have, to celebrate our accomplishments,
and rededicate ourselves to similar efforts for the ensuing year. As always, we
intend to make the meeting as meaningful and lively as possible.
In closing, each of our directors, management and staff extends their heartfelt
thanks to you for your continued support, assistance and enthusiasm that you
have provided to the Company and the Bank. We look forward to seeing you at the
Annual Meeting!
Sincerely,
/s/ Lewis S. Albert /s/ Todd H. Katz
- ------------------------ ---------------------------
Lewis S. Albert Todd H. Katz
Chairman & Vice Chairman
Chief Executive Officer & President
1
<PAGE> 4
SELECTED FINANCIAL DATA
The selected financial data of the Company presented below as of and for the
years ended December 31, 1999, 1998 and 1997 have been derived from consolidated
financial statements of the Company. The selected financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto.
<TABLE>
<CAPTION>
As of and for the
Years Ended December 31,
-------------------------------------
(Dollars in Thousands)
1999 1998 1997
-------- -------- -----
<S> <C> <C> <C>
SUMMARY OF FINANCIAL CONDITION:
Total assets $ 44,104 $ 22,837 $ 245
Total cash and cash equivalents 2,225 4,691 75
Securities available for sale 9,468 8,652 --
Loans receivable, net of allowance for loan losses 28,936 7,213 --
Total deposits 29,485 12,202 --
Total shareholders' equity 9,125 10,141 (170)
Average shareholders' equity 9,636 10,128 --
Average total assets 34,967 13,181 --
SUMMARY OF OPERATING RESULTS:
Total interest and dividend income 2,163 691 --
Total interest expense 948 132 --
Net interest income 1,215 559 --
Provision for loan losses 350 154 --
Total non-interest income 84 18 --
Total non-interest expense 1,763 1,076 171
Income (loss) before income taxes (814) (653) (171)
Income tax expense -- -- --
Net loss (814) (653) (171)
SUPPLEMENTAL DATA:
Return on average total assets (2.33)% (4.95)% --
Return on average shareholders' equity (8.45)% (6.45)% --
Net interest rate spread (1) 3.48% 4.23% --
Net yield on average interestearning assets (2) 4.01% 4.96% --
Net interest income to operating expenses (3) 68.94% 55.69% --
Average shareholders' equity to average total assets 27.56% 76.84% --
Average interestearning assets to average interest-bearing
liabilities 1.4:1 4.1:1 --
Non-performing assets to total assets -- -- --
Non-performing loans to total loan receivable -- -- --
Allowance for loan losses to total loans receivable 1.55% 2.09% --
Allowance for loan losses to nonperforming loans receivable -- -- --
Basic and diluted loss per common share $ (.69) $ (.60) --
Dividends declared per share -- -- --
Book value per share $ 7.88 $ 8.57 --
Number of offices 2 1 --
</TABLE>
(1) Interest rate spread is calculated by subtracting average interest rate cost
from average interest rate earned.
(2) Net interest income divided by average interest earning assets.
(3) Operating expenses consist of operating expenses, less income taxes.
2
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Details regarding the Company's financial performance are presented in the
following discussion, which should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Report.
INTRODUCTION
Tarpon Coast Bancorp, Inc. (the "Company") was formed in August 1997. However
its primary operating subsidiary, Tarpon Coast National Bank (the "Bank"), did
not commence operations until June 1, 1998. Until that time, the Company's
operations were limited to the organization of the Bank, and raising of its
initial capital through the offering of $11,500,000 of its common stock.
As the Company did not commence its banking operations until June 1, 1998,
financial condition and results of operations as of and for the years ended
December 31, 1999 and 1998 are not comparable to those as of and for the period
ended December 31, 1997.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO
YEAR ENDED DECEMBER 31, 1998
FINANCIAL CONDITION
For the year ended December 31, 1999, the Company continued to experience growth
in assets, loans and deposits. During the year, total assets grew by $21.3
million or 93% to $44.1 million. This increase was funded through the attraction
of customer deposit funds (including retail repurchase agreement balances) of
$21.5 million during the year, ending with aggregate balances of $34.1 million
at December 31, 1999. The Bank also had other short-term borrowings of $650,000
outstanding at December 31, 1999. These funds were principally used to generate
net loan demand of $22 million, increasing loan balances outstanding at December
31, 1999 to $29.4 million. Investment in securities available for sale increased
$815,000 to $9.5 million and premises and equipment increased $974,000 to $3.1
million. Total earning assets rose $19.1 million or 97% to $38.9 million.
RESULTS OF OPERATIONS
Interest income improved from $691,000 in 1998 to $2,164,000, a 213% increase.
The yield on average earnings assets for 1999 was 7.14% compared to 6.62% in
1998. Interest and fees on net loans for 1999 was $1,419,000 (average yield of
8.32%) compared to $149,000 (average yield of 9.86%), an increase of $1.3
million. Interest on investment securities increased from $399,000 in 1998
(average yield of 5.98%) to $572,000 in 1999 (average yield of 5.86%). Interest
on Federal Funds sold increased from $143,000 in 1998 (average yield of 5.67%)
to $173,000 in 1999 (average yield of 4.95%). While the rate environment during
the entirety of 1999 was lower than that of 1998, the overall yield on earning
assets improved due to the change in the mix of the Company's earning assets.
During 1999, average net loans comprised 56% of average earning assets compared
to 19% in 1998.
Interest expense increased from $132,000 in 1998 to $948,000 in 1999. Interest
on deposit accounts amounted to $841,000 in 1999 (average rate of 3.70%)
compared to $128,000 in 1998 (average rate of 3.74%). Interest expense on
customer repurchase agreements for 1999 was $103,000 (average rate of 4.30%)
compared to $4,000 in 1998 (average rate of 4.55%). The Bank also incurred
interest on other short-term borrowings of $1,000 in 1999.
The Company's net interest margin for 1999 was 4.01% compared to 4.96% in 1998.
The decrease is principally attributable to the decrease in average equity as a
percentage of average assets from 62% in 1998 to 28% in 1999, net of the effects
of the positive yield comparisons discussed above.
Non-interest income for 1999 increased to $84,000 from $18,000 in 1998. As the
Bank was only in operation for seven months in 1998, the annualized increase is
consistent with the Bank's growth in customer volume and resultant fee
activities.
Total non-interest expenses increased from $1,076,000 in 1998 to $1,763,000 in
1999, or an increase of 64%. Salaries and benefits expense represented the area
of greatest change, increasing from $571,000 in 1998 to $901,000 in 1999.
Full-time equivalent employees increased from 13 at December 31, 1998 to 21 at
December 31, 1999 in response to the increase in the volume of customer
relationships together with the opening in June 1999 of a branch office in North
Port, Florida. Total assets per employee were $2,100,000 at December 31, 1999
compared to $1,757,000 at December 31, 1998. The increase in premises and
equipment expense results from the branch expansion in June of 1999 together
with the incremental expenses associated with the Bank taking possession of its
permanent banking facility in March 1999. While other operating expenses have
grown at a disproportionate rate (94%), many of these expenses began upon the
commencement of the Company's banking operations in June 1998 and, accordingly,
represent a short year. Aggregate operating expenses to average assets improved
to 5.04 % for 1999 compared to 6.67 in 1998.
The provision for possible loan losses increased to $350,000 in 1999 from
$154,000 in 1998. Because of a lack of historical
3
<PAGE> 6
loss experience, the provision has been established based principally on loss
histories of comparably sized and positioned banking institutions, adjusted for
current economic and demographic conditions. The Company has provided an
additional 0.5% reserve for potential Year 2000 credit risks, which it will
reassess as experience determines.
LOAN PORTFOLIO
Management believes that general economic conditions in the Company's operating
area, including the real estate market, continue to be healthy due to the growth
in the area's population and demand for property and services. Accordingly, the
Company experienced continued demand for consumer and commercial financing in
1999 as net loans increased $21.7 million or 301% to $28.9 million at December
31, 1999. At December 31, 1999, commercial and industrial loans comprised 49.5%
of total loans; residential real estate loans comprised 29.6%; lines of credit
6.2%; and consumer were at 14.7%. Commercial lending activity is focused on
seasonal working capital loans and commercial real estate term loans. The
Company generally does not seek to purchase or participate in loans of other
institutions due to the adequacy of demand in its operating area. At December
31, 1999, the Company had no non-performing loans and there were no outstanding
loans that would represent troubled debt restructurings.
DEPOSITS
Total deposits increased $17.3 million, or 142%, to $29.5 million at December
31, 1999. During 1999, interest bearing deposits increased 143% to $24.3 million
while non-interest bearing deposits increased 136% to $5.2 million. At December
31, 1999, time deposits represented 34% of total deposits, other interest
bearing deposits were at 49%, and non-interest bearing balances were 17%.
The Company also utilizes customer repurchase agreements to generate funds.
These agreements call for interest payments ranging from between 25 to 75 basis
points below the 13-week Treasury Bill rate, adjusted weekly. At December 31,
1999, the Company had $4.7 million in customer repurchase agreements
outstanding.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO
YEAR ENDED DECEMBER 31, 1997
FINANCIAL CONDITION
For the year ended December 31, 1998, the Company experienced growth in assets,
loans and deposits. Total assets were $22,837,514, compared to $244,773 at
year-end 1997. This increase was due principally to the completion of the
Company's common stock offering (the "Offering") which generated approximately
$10.7 million in net proceeds together with an increase in customer deposits
aggregating approximately $12.2 million. These funds were used to generate net
loan demand of $7.4 million, while investment securities increased to $8.6
million. The remaining funds were invested in overnight Federal Funds sold of
$3.7 million and to fund the Bank's $2.1 million investment in premises and
equipment and for other operating purposes. Total earning assets increased to
$19.7 million at December 31, 1998.
RESULTS OF OPERATIONS
Interest income increased to $691,000 for 1998 compared to $0 for 1997. Interest
income for 1998 included $165,000 of interest earned on escrowed Offering
proceeds during its organizational period to June 1, 1998. Average yields on
average earning assets were 6.62% for 1998. Interest and fees on loans were
$149,000 for the year for an average yield of 9.86%; interest on investment
securities for the period was $234,000 for an average yield of 5.98%; and
interest on Federal Funds sold was $143,000 for an average yield of 5.67%.
Interest expense increased to $132,000 for 1998 as compared to $0 for 1997 of
which $128,000 pertained to interest-bearing deposits and $4,000 to customer
repurchase agreements. The average rate paid on interestbearing liabilities was
3.21% in 1998.
Net interest income increased to $559,000 for 1998 as compared to $0 for 1997.
The net interest margin for 1998 was 4.96%.
Noninterest income for 1998 increased to $18,000 as compared to $0 for 1997. The
increase resulted primarily from commencement of its banking operations, deposit
activity and the expansion of fee generating services.
Total noninterest expense increased to $1,076,000 for 1998 compared to $171,000
for 1997. Salaries and benefits expense represented the area of greatest change,
increasing from $0 in 1997 to $571,000 in 1998. Fulltime equivalent employees
increased from 0 at December 31, 1997 to 13 at December 31, 1998 in response to
the commencement of the Company's banking operations. Total assets per full-time
equivalent employee were $1,757,000 at December 31, 1998. The remaining increase
in non-interest expenses was represented principally by occupancy and equipment
expenses of $228,000 for 1998 as compared to $0 for 1997.
The provision for possible loan losses for 1998 increased to $154,000 and was
initially established at a rate of 1.5% of outstanding loans and unfunded loan
commitments. Because of the lack of historical loss rates, a general reserve of
1% together with a 0.5% reserve for potential Year 2000 credit risk was
established.
LOAN PORTFOLIO
There was substantial demand for consumer and commercial loans during 1998 as
loans increased to $7.4 million at December 31, 1998. At December 31, 1998,
commercial loans
4
<PAGE> 7
represented 77.9% of total loans; residential real estate loans represented 7.4%
loans; lines of credit 0.9%; and consumer loans were 13.8%. The Company did not
have any nonperforming or non-accruing loans during the course of 1998. There
were no loans that would represent troubled debt restructurings at December 31,
1998.
DEPOSITS
Total deposits increased to $12.2 million at December 31, 1998. The change was
realized primarily in interest bearing deposits, which increased to $10 million
while noninterest bearing deposits increased to $2.2 million. At December 31,
1998, time deposits represented 59% of total deposits, other interest bearing
deposits represented 23%, and non-interest bearing balances were at 18%.
CAPITAL RESOURCES AND LIQUIDITY
Management of the Company has developed a strategic initiative that provides for
the expansion of its banking operations into new primary service areas, as well
as continued expansion of its market share in its existing market. In this
regard, certain initial outlays are required to fund the opening of branch
facilities, including investment in premises and equipment, staffing and
promotional activities. While it is anticipated that interest income will
increase commensurate with interest expense upon the attraction of deposits,
non-interest expenses will generally be disproportionately higher until such
time as the volume of deposits and earning assets generate net interest income
and service fees sufficient to cover these costs. Management's philosophy in
each instance of expansion is to attract deposit relationships through the
offering of competitive rates, terms and service convenience.
As it is the Company's philosophy to consider the investment portfolio
principally as a source of liquidity, deposit growth, except to the extent
necessary to maintain such liquidity, is generally utilized to fund the higher
yielding loan portfolio, particularly commercial and consumer lending. In
addition, it is management's practice to maintain the Company's "well
capitalized" status under regulatory guidelines when planning its expansion
activities.
Consistent with the objective of operating a sound financial organization, the
Company maintains high capital ratios. Regulatory agencies including the Office
of the Comptroller of the Currency and the Federal Reserve Bank have approved
guidelines for a riskbased capital framework that makes capital requirements
more sensitive to the risks germane to each individual institution. The
guidelines require that total capital of 8% be held against total risk-adjusted
assets. At December 31, 1999, the Company's Tier I capital ratio was 29.20%,
total riskbased capital ratio was 30.45% and the leverage ratio was 21.68%.
The Company's ability to satisfy demands for credit, deposit withdrawals and
other corporate needs depends on its level of liquidity. The Company utilizes
several means to manage its liquidity. Traditionally, increases in deposits are
sufficient to provide adequate levels of liquidity; however, if needed, the
Company has approved extensions of credit available from correspondent banks,
sources for loan sales and primarily shortterm investments that could be
liquidated if necessary. While the Company has not had a need to utilize these
sources of liquidity, it continues to maintain their availability on a
contingent basis.
5
<PAGE> 8
INTEREST SENSITIVITY
The following is a combined maturity and repricing analysis of ratesensitive
assets and liabilities as of December 31, 1999.
<TABLE>
<CAPTION>
0-90 91-180 181-365 OVER
DAYS DAYS DAYS 1 YEAR TOTAL
--------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal Funds Sold $ -- $ -- $ -- $ -- $ --
Investment Securities -- 999 -- 8,469 9,468
Loans 1,031 1,536 2,999 23,824 29,390
----- ----- ----- ------ ------
Total Interest Earning Assets 1,031 2,535 2,999 32,293 38,858
----- ----- ----- ------ ------
Interest Bearing Liabilities 8,532 1,453 4,583 15,041 29,609
----- ----- ----- ------ ------
Excess (Deficiency) of Rate
Sensitive Assets Less Rate
Sensitive Liabilities $ (7,501) $ 1,082 $(1,584) $ 17,252 $ 9,249
========= ======= ======== ======== ========
Excess (Deficiency) as a
Percentage of Earning Assets -19.30% 2.78% -4.08% 44.40% 23.80%
Cumulative Excess (Deficiency) $ (7,501) $(6,419) $(8,003) $ 9,249
========= ======== ======== =======
Cumulative Excess (Deficiency)
As a Percentage of
Earning Assets -19.30% -16.52% -20.60% 23.80%
</TABLE>
The objective of interestsensitivity management is to minimize the risk
associated with the effect of interest rate changes on net interest margins
while maintaining net interest income at acceptable levels. Managing this risk
involves monthly monitoring of the interestsensitive assets relative to
interestsensitive liabilities over specific time intervals. All assets and
liabilities are evaluated as maturing at the earlier of repricing date or
contractual maturity date. While liabilities without specific terms such as
money market, NOW and savings accounts are generally considered core deposits
for liquidity purposes, they are deemed to reprice for purposes of interest rate
sensitivity analysis. Except for the Company's "Treasure Checking" which is tied
to the 13 week U.S. Treasury auction rate, management subjectively sets rates on
each of these accounts.
At December 31, 1999, the Company had $6.6 million in interestsensitive assets
compared to $14.6 million in interestsensitive liabilities (of which $5.4
million were considered core deposits) that will mature or reprice within a
year.
A negative gap position is indicative of a bank which has a greater amount of
interestsensitive liabilities repricing (or maturing) than it does
interestsensitive assets, in a given time interval. In this instance, the impact
on net interest income would be positive in a declining rate environment and
negative if rates were rising. Conversely, a positive gap position represents a
greater amount of interestsensitive assets repricing (or maturing). Thus, an
increase in rates would positively impact net interest income, as the yield on
earning assets would increase prior to the increase in the cost of
interestbearing liabilities. The impact on net interest income described above
is general, as other factors would additionally maximize or minimize the effect.
For example, a change in the prime interest rate could effect an immediate
change to rates on prime related assets, whereas a liability which reprices
according to changes in Treasury rates might (1) lag in the timing of the change
and (2) change rates in an amount less than the change in the prime interest
rate.
Management believes that the current balance sheet structure of
interestsensitive assets and liabilities does not represent a material risk to
earnings or liquidity in the event of a change in market rates.
PROPOSED EXPENDITURES
At December 31, 1999, the Company was in the final stages of completion of its
permanent branch facility in North Port, Florida. Expenditures required to
complete and equip the facility are estimated at approximately $605,000 at
December 31, 1999.
6
<PAGE> 9
MARKET FOR COMMON
EQUITY AND
RELATED
SHAREHOLDER
MATTERS
The Company's Common Stock was held by approximately 740 registered holders of
record as of February 18, 2000, and is quoted on the OTC Bulletin Board under
the symbol "TCBA." To date there has been no regular and liquid market for the
common stock, and there can be no assurance that a regular and liquid trading
market will develop in the foreseeable future.
The following table shows, for the periods indicated, the high and low bid
quotations per share of transactions in the Company's common stock as quoted on
the OTC Bulletin Board since January 28,1998 (the date the Company's common
stock began trading). Certain other private transactions may have occurred
during the periods indicated of which the Company has no knowledge. The
following prices represent interdealer prices without retail markups, markdowns
or commissions.
<TABLE>
<CAPTION>
Per Share
Bid Prices
---------------------------------
High Low
------ ------
<S> <C> <C>
1999
- ----
1st Quarter $13.50 $13.00
2nd Quarter $13.00 $12.50
3rd Quarter $13.12 $12.50
4th Quarter $12.50 $10.50
1998
- ----
1st Quarter $15.00 $10.25
2nd Quarter $17.00 $15.12
3rd Quarter $15.75 $13.00
4th Quarter $15.00 $10.00
</TABLE>
No cash or other dividends were declared or paid during the years ended December
31, 1999, 1998 or 1997. The Company expects that all Company and Bank earnings,
if any, will be retained to finance the growth of the Company and the Bank and
that no cash dividends will be paid for the foreseeable future.
7
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
A S S E T S
Cash and due from banks $ 2,224,990 $ 990,881
Federal funds sold 0 3,700,000
------------ ------------
TOTAL CASH AND CASH EQUIVALENTS 2,224,990 4,690,881
------------ ------------
Securities available for sale - NOTE B 9,154,506 8,370,787
Loans - NOTE C 29,398,056 7,367,382
Less:
Allowance for loan losses - NOTE C (454,576) (154,000)
Unearned income and deferred loan fees (7,645) 0
------------ ------------
NET LOANS 28,935,835 7,213,382
------------ ------------
Restricted securities, Federal Home Loan Bank
and Federal Reserve Bank stock, at cost 313,400 281,700
Premises and equipment - NOTE D 3,123,866 2,149,409
Accrued interest receivable 197,187 98,552
Other assets 153,879 32,803
------------ ------------
$ 44,103,663 $ 22,837,514
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits - NOTE E $ 29,484,727 $ 12,202,388
Federal funds purchased and securities
sold under agreements to repurchase - NOTE F 5,309,717 446,583
Accrued interest payable 42,366 22,845
Accrued expenses and other liabilities 142,074 24,244
------------ ------------
TOTAL LIABILITIES 34,978,884 12,696,060
------------ ------------
Commitments and contingencies - NOTE H
Stockholders' Equity - NOTE K:
Preferred stock, no par value, 2,000,000 shares
authorized, no shares issued and outstanding 0 0
Common stock, par value $.01 per share,
10,000,000 shares authorized, 1,182,151 and 100
shares issued and outstanding, respectively 11,821 11,821
Additional paid-in capital 10,940,915 10,940,915
Accumulated deficit (1,638,175) (824,268)
Accumulated other comprehensive income (loss) (189,782) 12,986
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,124,779 10,141,454
------------ ------------
$ 44,103,663 $ 22,837,514
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
8
<PAGE> 11
CONSOLIDATED STATEMENTS OF OPERATIONS
TARPON COAST BANCORP, INC. AND SUBSIDIARY
Years ended December 31, 1999 and 1998 and the
period from May 1, 1997 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 1,418,542 $ 148,513 $ 0
Interest on securities and other 572,014 399,355 0
Interest on federal funds sold 172,964 142,785 0
----------- ----------- ---------
TOTAL INTEREST INCOME 2,163,520 690,653 0
----------- ----------- ---------
INTEREST EXPENSE
Interest on deposits 840,979 127,591 0
Interest on other borrowings 107,116 4,314 0
----------- ----------- ---------
TOTAL INTEREST EXPENSE 948,095 131,905 0
----------- ----------- ---------
NET INTEREST INCOME 1,215,425 558,748 0
Provision for loan losses (350,000) (154,000) 0
----------- ----------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 865,425 404,748 0
NON-INTEREST INCOME
Service charges, commissions and fees 83,724 18,287 0
----------- ----------- ---------
949,149 423,035 0
----------- ----------- ---------
NON-INTEREST EXPENSES
Salaries and employee benefits - NOTE J 900,871 571,397 0
Occupancy expenses 98,124 170,630 0
Equipment rental, depreciation and
maintenance 226,144 57,854 0
General operating - NOTES I AND N 537,917 276,597 170,825
----------- ----------- ---------
TOTAL OTHER EXPENSES 1,763,056 1,076,478 170,825
----------- ----------- ---------
LOSS BEFORE INCOME TAXES (813,907) (653,443) (170,825)
INCOME TAXES - NOTE G 0 0 0
----------- ----------- ---------
NET LOSS $ (813,907) $ (653,443) $(170,825)
=========== =========== =========
LOSS PER SHARE $ (.69) $ (.60) $ 0
=========== =========== =========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,182,151 1,091,473 0
=========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements
9
<PAGE> 12
CONSOLIDATED STATEMENTS OF CASH FLOWS
TARPON COAST BANCORP, INC. AND SUBSIDIARY
Years ended December 31, 1999 and 1998 and the period from
May 1, 1997 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (813,907) $ (653,443) $(170,825)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 180,242 148,473 962
Provision for loan losses 350,000 154,000 0
Accretion of deferred loan fees
and discounts (986) 0 0
Increase in accrued interest
receivable (98,635) (98,552) 0
(Increase) decrease in other assets (16,619) 34,660 (74,153)
Increase in accrued interest
payable 19,521 22,845 0
Increase (decrease) in accrued
expenses and other liabilities 117,830 (24,519) 48,763
------------ ------------ ---------
NET CASH USED IN OPERATING ACTIVITIES (262,554) (416,536) (195,253)
------------ ------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (22,071,467) (7,367,382) 0
Purchases of securities available
for sale (5,620,831) (9,580,357) 0
Proceeds from maturities of securities
available for sale and principal
collections 4,498,188 947,545 0
Purchases of premises and equipment (1,154,700) (2,201,842) (97,002)
------------ ------------ ---------
NET CASH USED IN INVESTING ACTIVITIES (24,348,810) (18,202,036) (97,002)
------------ ------------ ---------
</TABLE>
See accompanying notes to consolidated financial statements
10
<PAGE> 13
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
Years ended December 31, 1999 and 1998 and the period from
May 1, 1997 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ --------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 17,282,339 $ 12,202,388 $ 0
Proceeds from (repayment of) organizer
advances 0 (44,350) 365,835
Net increase in securities sold under
agreement to repurchase 4,863,134 446,583 0
Net proceeds from issuance of common
stock 0 10,630,252 1,000
------------ ------------ --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 22,145,473 23,234,873 366,835
------------ ------------ --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,465,891) 4,616,301 74,580
CASH AND CASH EQUIVALENTS
Beginning of period 4,690,881 74,580 0
------------ ------------ --------
End of period $ 2,224,990 $ 4,690,881 $ 74,580
============ ============ ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 928,574 $ 109,060 $ 0
============ ============ ========
Noncash Transactions:
Settlement of organizer advances
in exchange for issuance of
common stock $ 0 $ 321,485 $ 0
============ ============ ========
Unrealized increase (decrease)
in fair value on securities
available for sale $ (287,549) $ 19,676 $ 0
============ ============ ========
</TABLE>
See accompanying notes to consolidated financial statements
11
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation:
Tarpon Coast Bancorp, Inc. (the Company) was incorporated under the
laws of the state of Florida on August 7, 1997. The Company is the successor
entity to Gulf Coast Community Partners, organized on May 1, 1997 as a general
partnership. The Company's activities prior to June 1, 1998 were limited to the
organization of Tarpon Coast National Bank, (the Bank), as well as preparation
for a $10,000,000 common stock offering (the Offering). On June 1, 1998, the
Company and the Bank emerged from the development stage and began operations.
The consolidated financial statements of the Company include the
accounts of the Company and its wholly-owned subsidiary, Tarpon Coast National
Bank. All significant intercompany balances and transactions have been
eliminated.
Nature of Operations:
The Bank operates under a national bank charter and provides full
banking services within the Port Charlotte, North Port and Punta Gorda, Florida
area at two banking facilities. As a national bank, it is subject to regulation
of the Office of the Comptroller of the Currency and the Federal Deposit
Insurance Corporation.
Use of Estimates:
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Cash, demand balances due from banks and federal funds sold are
considered cash and cash equivalents for cash flow reporting purposes.
Generally, federal funds are sold for one-day periods.
Investment Securities:
Debt securities for which the Bank has the positive intent and ability
to hold to maturity are classified as held to maturity and reported at amortized
cost. Securities are classified as trading securities if bought and held
principally for the purpose of selling them in the near future. No investments
are held for trading purposes or classified as held to maturity. Securities not
classified as trading or held to maturity are classified as available for sale,
and reported at fair value with unrealized gains and losses excluded from
earnings and reported net of tax as a separate component of stockholders' equity
until realized. Other investments, which include Federal Reserve Bank stock and
Federal Home Loan Bank stock, are carried at cost as such investments do not
have readily determinable fair values.
12
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment Securities (Continued):
Realized gains and losses on sales of investment securities are
determined by specific identification of the security sold. Declines in value of
investment securities judged to be other than temporary are recognized as losses
in the statement of operations.
Loans:
Loans are stated at the principal amount outstanding, net of unearned
income and an allowance for loan losses. Interest income on all loans is accrued
based on the outstanding daily balances.
Management has established a policy to discontinue accruing interest
(non-accrual status) on a loan after it has become 90 days delinquent as to
payment of principal or interest unless the loan is considered to be well
collateralized and the Bank is actively in the process of collection. In
addition, a loan will be placed on non-accrual status before it becomes 90 days
delinquent if management believes that the borrower's financial condition is
such that collection of interest or principal is doubtful. Interest previously
accrued but uncollected on such loans is reversed and charged against current
income when the receivable is estimated to be uncollectible. Interest income on
non-accrual loans is recognized only as received.
Nonrefundable fees and certain direct costs associated with originating
or acquiring loans are recognized over the life of related loans on a method
that approximates the interest method.
Allowance for Loan Losses:
The determination of the balance in the allowance for loan losses is
based on an analysis of the loan portfolio and reflects an amount which, in
management's judgment, is adequate to provide for probable loan losses after
giving consideration to the growth and composition of the loan portfolio,
current economic conditions, past loss experience, evaluation of potential
losses in the current loan portfolio and such other factors that warrant current
recognition in estimating loan losses.
Loans which are considered to be uncollectible are charged-off against
the allowance. Recoveries on loans previously charged-off are added to the
allowance.
Impaired loans are loans for which it is probable that the Bank will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. Impairment losses are included in the allowance for loan losses
through a charge to the provision for loan losses. Impairment losses are
measured by the present value of expected future cash flows discounted at the
loan's effective interest rate, or, as a practical expedient, at either the
loan's observable market price or the fair value of the collateral. Interest
income on impaired loans is recognized only as received.
13
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Premises and Equipment:
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the depreciable assets. Leasehold improvements are
amortized over the lives of the respective leases or the service lives of the
improvements, whichever is less.
Income Taxes:
Provisions for income taxes are based on taxes payable or refundable
for the current year and deferred taxes on temporary differences between the
amount of taxable income and pretax financial income and between the tax basis
of assets and liabilities and their reported amounts in the consolidated
financial statements. Deferred tax assets and liabilities are included in the
consolidated financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and liabilities are
expected to be realized or settled.
The Company and the Bank file a consolidated tax return.
New Accounting Pronouncements:
In June 1998, the Financing Accounting Standards Board (FASB) issued
Statement No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting standards for
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, the FASB issued SFAS 137 which deferred the
effective date of SFAS 133 to years beginning after June 15, 2000. Management
does not believe the adoption of this statement will have a material impact on
financial condition and results of operations.
14
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE B - SECURITIES
The amortized cost, unrealized gains and losses and estimated fair
value of available for sale investment securities shown in the consolidated
balance sheets of the Company at December 31, are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED ESTIMATED
AMORTIZED ------------------------ FAIR
COST GAINS LOSSES VALUE
------------ -------- -------- -----------
<S> <C> <C> <C> <C>
December 31, 1999:
Mortgage-backed securities
of U.S. Government Agencies $ 2,890,115 $ 0 $ 83,829 $ 2,806,286
U.S. Treasury securities
and other U.S. agency
obligations 6,502,026 0 203,720 6,298,306
Independent Bankers Bank Stock 49,914 0 0 49,914
------------ -------- -------- -----------
Totals $ 9,442,055 $ 0 $287,549 $ 9,154,506
============ ======== ======== ===========
December 31, 1998:
Mortgage-backed securities
of U.S. Government Agencies $ 3,847,502 $ 7,978 $ 130 $ 3,855,350
U.S. Treasury securities and
other U.S. agency obligations 4,503,609 11,828 0 4,515,437
------------ -------- -------- -----------
Totals $ 8,351,111 $ 19,806 $ 130 $ 8,370,787
============ ======== ======== ===========
</TABLE>
15
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE B - SECURITIES (CONTINUED)
Expected maturities of investment securities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Periodic payments are
received of mortgage-backed securities based on the payment patterns of the
underlying collateral. Maturities of mortgage-based securities are included
below based on their expected average life of similar investments as determined
by the Bank's portfolio and analysis servicer. As of December 31, 1999, the
amortized cost and estimated fair value of investment securities available for
sale, by contractual maturities, are as follows:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due within one year $1,371,086 $1,364,575
Due after one through
five years 7,521,997 7,271,112
Due after five through
ten years 499,058 468,905
---------- ----------
9,392,141 9,104,592
Independent Bankers Bank 49,914 49,914
---------- ----------
Totals $9,442,055 $9,154,506
========== ==========
</TABLE>
Investment securities with an amortized cost and fair value of
$8,208,521 and $7,808,720, respectively, at December 31, 1999, were pledged to
secure repurchase agreements (see Note F).
NOTE C - LOANS
The composition of loans at December 31, is as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Commercial $ 14,547,771 $ 5,744,852
Real estate 8,698,280 552,113
Lines of credit 1,828,262 53,413
Consumer 4,323,743 1,017,004
------------ ------------
Totals $ 29,398,056 $ 7,367,382
============ ============
</TABLE>
16
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE C - LOANS (CONTINUED)
The majority of the Company's lending activities are conducted
principally with customers located in the Port Charlotte, North Port and Punta
Gorda, Florida area. Commercial loans are primarily extended to small and
mid-sized corporate borrowers in service and manufacturing related industries.
Although the Bank's loan portfolio is diversified, a significant portion of its
loans are collateralized by real estate. Therefore, the Bank could be
susceptible to economic downturns and natural disasters.
The Bank had no loans on nonaccrual as of December 31, 1999 and 1998.
The activity in the allowance for loan losses for the years ended
December 31, is as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Balance at beginning of year $ 154,000 $ 0
Provision charged to
operations 350,000 154,000
Charge-offs (49,456) 0
Recoveries 32 0
------------ ------------
Balance at end of year $ 454,576 $ 154,000
============ ============
</TABLE>
NOTE D - PREMISES AND EQUIPMENT
Premises and equipment at December 31, consist of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Land and land improvements $1,274,391 $1,274,391
Building 941,363 0
Motor vehicles 21,802 20,844
Leasehold improvements 3,222 106,492
Furniture, fixtures and equipment 488,229 109,075
EDP equipment and software 331,938 176,273
Construction in progress 276,171 611,769
---------- ----------
3,337,116 2,298,844
Less accumulated depreciation 213,250 149,435
---------- ----------
Totals $3,123,866 $2,149,409
========== ==========
</TABLE>
Depreciation expense was $180,242, $148,473 and $962 for the years
ended December 31, 1999 and 1998 and the period from May 1, 1997 (date of
inception) to December 31, 1997, respectively. Additionally, during 1999 the
bank disposed of $116,427 of assets which were fully depreciated as of the
disposal date. No gain or loss was recognized as a result of this transaction.
17
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE E - DEPOSITS
Deposits at December 31, are comprised of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Interest-bearing:
Money market $ 1,925,994 $ 208,569
Negotiable order of
withdrawal accounts 4,023,053 1,550,698
Savings 8,405,954 1,105,241
Certificates of deposit:
Less than $100,000 7,946,735 5,772,239
$100,000 or more 1,990,510 1,366,445
----------- -----------
24,292,246 10,003,192
Demand (non-interest-bearing) 5,192,481 2,199,196
----------- -----------
Totals $29,484,727 $12,202,388
=========== ===========
</TABLE>
The maturities on certificates of deposit of $100,000 or more as of
December 31, 1999 are as follows:
<TABLE>
<S> <C>
Three months or less $ 650,349
Over three months to six months 100,000
Over six months to twelve months 840,161
Over twelve months 400,000
------------
Total $ 1,990,510
============
</TABLE>
The maturities on certificates of deposits as of December 31, 1999 are
as follows:
<TABLE>
<S> <C>
2000 $ 9,134,080
2001 703,165
2002 0
2003 0
2004 100,000
------------
Total $ 9,937,245
============
</TABLE>
Included in interest expense is $58,893 which relates to interest on
certificates of deposit of $100,000 or more.
18
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE F - SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE AND OTHER BORROWINGS
The securities sold under agreements to repurchase (the repurchase
agreement) have been accounted for as a financing and the obligation to
repurchase the securities sold is reflected as a liability in the consolidated
balance sheets. The repurchase agreements were transacted with various Bank
customers and interest is payable monthly at varying rates (average rate of
4.25% at December 31, 1999) tied to the 13-week U.S. Treasury Bill rates. These
agreements immediately terminate upon written notice by either party. Securities
sold under agreement to repurchase averaged $4,997,581 and $1,475,932 during
1999 and 1998, respectively. The maximum amount outstanding at any month end
under such agreement during 1999 and 1998 was $5,840,397 and $3,540,755,
respectively.
NOTE G - INCOME TAXES
At December 31, 1999 and 1998, the Bank assessed its earnings history
and trend over the past year, its estimate of future earnings, and the
expiration date of the net operating loss carryforward and determined that it is
more likely than not that the deferred tax assets will not be realized in the
near term. Accordingly, a valuation allowance is recorded at December 31, 1999
and 1998.
The components of deferred tax assets and deferred tax liabilities at
December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $268,308 $ 50,510
Allowance for loan losses 141,120 52,360
Organizational and startup costs 107,097 138,536
Depreciation on premises and equipment 0 33,198
Unrealized loss in investment securities 97,767 0
Other deductions deferred for
income taxes 6,060 8,374
-------- ---------
620,352 282,978
-------- ---------
Deferred tax liabilities:
Depreciation on premises and equipment 13,900 0
Unrealized gain in investment securities 0 6,690
-------- ---------
13,900 6,690
-------- ---------
Valuation allowance 508,685 282,978
-------- ---------
Deferred tax assets (liability), net $ 97,767 $ (6,690)
======== =========
</TABLE>
At December 31, 1999, the Company had a tax net operating loss
carryforward of approximately $789,000 expiring on various dates through 2019.
19
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company has entered into an operating lease agreement for a
temporary facility to be used as a branch bank while its North Port facility is
constructed. The lease agreement expires April 30, 2000. Rent expense was
$16,056 for 1999 related to this lease.
As of December 31, 1999, the Company was in the final stages of
completion of its North Port branch banking facility. Expenditures required to
complete the facility total approximately $605,000 at December 31, 1999.
The Company and the Bank have entered into employment agreements
expiring in 2000 with four senior officers providing for annual compensation
aggregating approximately $331,500.
NOTE I - RETIREMENT PLAN
The Company maintains a 401(k) Retirement Plan (the Plan) to which
eligible employees may contribute from 1% to 20% of their pay. The Company
contributes to the Plan 50% of an eligible employee's deferral on the first 6%
that the eligible employee defers, and may make discretionary contributions in
excess of that amount based on the Company's profitability and approval of the
board of directors. Employees who have completed at least one year of service
and have attained age 21 are generally eligible to participate. Employee
contributions are 100% vested as amounts are credited to the employee's account.
Company contributions become 20% vested when an employee has completed 1 year of
service, and vest at a rate of 20% per year thereafter, fully vesting when an
employee has completed 5 years of service. The Company made contributions to the
Plan of $19,626 in 1999 and $8,525 in 1998.
NOTE J - RELATED PARTY TRANSACTIONS
The Bank has granted loans to executive officers and directors of the
Bank and the Company and to associates of such executive officers and directors.
Such loans were made in the ordinary course of business under normal credit
terms and do not represent more than the normal risk of collection. The activity
for these loans for 1999 is as follows:
<TABLE>
<S> <C>
Loan balances at December 31, 1998 $1,153,045
New loans 1,719,844
Repayments 1,165,575
----------
Loan balances at December 31, 1999 $1,707,314
==========
</TABLE>
The Bank also has accepted deposits and entered into repurchase
agreements from employees, officers and directors of the Bank and the Company
and from affiliates of such officers and directors. The deposits and repurchase
agreements were accepted on substantially the same terms as those of other
depositors. Such deposits and repurchase agreements amounted to approximately
$2,269,551 and $1,157,875, respectively at December 31, 1999 and $1,037,885 and
$0, respectively at December 31, 1998.
20
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE K - STOCKHOLDERS' EQUITY
The Company has adopted an incentive stock option plan for certain of
its employees and has authorized and reserved 125,000 shares of common stock for
issuance under this plan.
The Company applies APB 25 in accounting for its stock option plan
described above. The option price under the stock option plan equals or exceeds
the fair market value of the common shares on the date of grant and,
accordingly, no compensation cost has been recognized under the provisions of
APB 25 for stock options. Under SFAS 123, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
(or vesting) period. Had compensation cost for the Company's stock option plan
been determined under SFAS 123, based on the fair market value at the grant
dates, the Company's proforma net loss and net loss per share would have been
reflected as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net loss as reported $ (813,907) $ (653,443)
Proforma net loss $ (850,434) $ (689,307)
Net loss per share as reported $ (.69) $ (.60)
Proforma net loss per share $ (.72) $ (.63)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model. Assumptions used in 1999 and 1998
include: dividend yield of 0.00%, expected volatility of 16.12% and 35.34%,
risk-free interest rate of 6.00% and 5.00% and average expected lives of 9.19
and 10 years, respectively. At December 31, 1999 and 1998, options for 14,200
and 6,350 shares were exercisable at an average price per share of $10.57 and
$10.00, respectively. Options granted expire after 10 years and are exercisable
in 10% increments annually. Transactions related to this stock option plan are
as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS OPTION PRICE
OUTSTANDING PER SHARE
----------- ----------------
<S> <C> <C>
Balance December 31, 1997 0
Granted 63,500 $ 10.00
Exercised 0
Forfeited 0
---------- ----------
Balance December 31, 1998 63,500 $ 10.00
Granted 15,000 $ 12.96
Exercised 0
Forfeited 0
---------- ----------
Balance December 31, 1999 78,500 $ 10.57
========= ==========
</TABLE>
21
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE K - STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Weighted Remaining Weighted
Average Contractual Average
Range of Exercise Life Exercise
Exercise Prices Outstanding Price (in years) Exercisable Price
- --------------- ----------- --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 10.00 63,500 $ 10.00 8.1 12,700 $ 10.00
12.50-13.25 15,000 12.96 9.2 1,500 12.96
- --------------- ----------- --------- ----------- ----------- --------
Total 78,500 $ 10.57 14,200 $ 10.31
=========== ========= =========== ========
</TABLE>
In connection with its initial offering of common stock, the Company
granted to certain organizers of the Company warrants to purchase .34 shares of
common stock (at an exercise price of $10.00 per share) for each share purchased
by such organizers in the offering. The Warrants will vest in equal increments
of 25% commencing on the date of grant and on each anniversary date thereafter
until fully vested. Warrants may be exercised in whole or in part for $10.00 per
share beginning on the date of grant and expiring 10 years after the grant date.
The warrant agreement further provides for a call provision in the event the
Bank is determined to require additional capitalization under supervisory order,
and if not honored when called, will terminate at that time.
The Company has reserved 96,443 shares of its Common Stock for issuance
thereunder.
The approval of the Comptroller of the Currency is required for
national banks to pay dividends in excess of earnings retained in the current
year plus retained net profits for the preceding two years. As of December 31,
1999, no amount was available for distribution to the Company as dividends
without prior regulatory approval.
The Company and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings, and other
factors, and the regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the financial statements.
22
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE K - STOCKHOLDERS' EQUITY (CONTINUED)
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
<TABLE>
<CAPTION>
Capital to risk-
weighted assets
---------------------- Tier 1 capital
Total Tier 1 to average assets
-------------------------------------------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
</TABLE>
The Company was considered well capitalized as of December 31, 1999 and
1998.
Management is not aware of any events or circumstances that have
occurred since year-end that would change the Company's capital category.
23
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE K - STOCKHOLDERS' EQUITY (CONTINUED)
At December 31, actual capital levels and minimum required levels were
as follows (in thousands):
<TABLE>
<CAPTION>
Minimum Required
Minimum To Be Well
Required Capitalized Under
For Capital Prompt Corrective
Adequacy Action
Actual Purposes Regulations
- --------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999
Total capital (to risk
weighted assets)
Consolidated $ 9,714 30.45% $2,552 8.00% $ 3,190 10.00%
Bank $ 6,659 20.87% $2,552 8.00% $ 3,190 10.00%
Tier 1 capital (to risk
weighted assets)
Consolidated $ 9,315 29.20% $1,276 4.00% $ 1,914 6.00%
Bank $ 6,260 19.62% $1,276 4.00% $ 1,914 6.00%
Tier 1 capital (to
average assets)
Consolidated $ 9,315 21.68% $1,718 4.00% $ 2,148 5.00%
Bank $ 6,260 14.57% $1,718 4.00% $ 2,148 5.00%
1998
Total capital (to risk
weighted assets)
Consolidated $10,282 84.26% $ 976 8.00% $ 1,220 10.00%
Bank $ 7,119 60.28% $ 945 8.00% $ 1,181 10.00%
Tier 1 capital (to risk
weighted assets)
Consolidated $10,128 83.06% $ 488 4.00% $ 732 6.00%
Bank $ 6,965 58.98% $ 472 4.00% $ 709 6.00%
Tier 1 capital (to
average assets)
Consolidated $10,128 76.83% $ 527 4.00% $ 659 5.00%
Bank $ 6,965 69.43% $ 401 4.00% $ 502 5.00%
</TABLE>
24
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE L - OFF-BALANCE SHEET RISK
In the normal course of business, the Bank utilizes various financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
through loans approved but not yet funded, lines of credit and standby letters
of credit. The credit risks associated with financial instruments are generally
managed in conjunction with the Banks' balance sheet activities and are subject
to normal credit policies, financial controls and risk limiting and monitoring
procedures.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Banks evaluate each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Banks upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but may include
compensating balances, accounts receivable, inventory, property, plant and
equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. Most guarantees expire within one year. The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. Collateral supporting these commitments
for which collateral is deemed necessary is maintained by the Banks.
Credit losses are incurred when one of the parties fails to perform in
accordance with the terms of the contract. The Banks' exposure to off-balance
sheet credit risk is represented by the contractual amount of the commitments to
extend credit and standby letters of credit. At December 31, 1999 and 1998, the
Bank had commitments of approximately $6,762,692 and $4,329,000, respectively,
for undisbursed portions of loans in process and unused portions of lines of
credit. Commitments under standby letters of credit aggregated approximately
$20,000 and $28,190 at December 31, 1999 and 1998, respectively.
25
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE M - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table presents the estimates of fair value of financial
instruments as of December 31:
<TABLE>
<CAPTION>
1999
-------------------------------------
ESTIMATED
CARRYING FAIR
AMOUNT VALUE
----------- -----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 2,224,990 $ 2,224,990
Securities available for sale 9,104,592 9,104,592
Net loans 28,935,835 27,207,498
Accrued interest receivable 197,187 197,187
Financial liabilities:
Deposits 29,484,727 29,313,768
Accrued interest payable 42,366 42,366
Off-Balance Sheet Credit Risk:
Commitments to extend credit 6,762,692 6,762,692
Standby letters of credit 20,000 20,000
</TABLE>
<TABLE>
<CAPTION>
1998
-------------------------------------
ESTIMATED
CARRYING FAIR
AMOUNT VALUE
----------- -----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 4,690,881 $ 4,690,881
Securities available for sale 8,370,787 8,370,787
Net loans 7,213,382 7,213,382
Accrued interest receivable 98,552 98,552
Financial liabilities:
Deposits 12,202,388 11,922,028
Short-term borrowings 3,218,000 3,212,964
Accrued interest payable 22,845 22,845
Off-Balance Sheet Credit Risk:
Commitments to extend credit 4,329,000 4,329,000
Standby letters of credit 28,190 28,190
</TABLE>
26
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE M - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and cash equivalents: For these short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Securities: For securities available for sale fair value equals quoted
market price, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar
securities.
Loans: The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining
maturities.
Deposits: The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity deposits is estimated
by discounting future cash flows using rates currently offered for
deposits of similar remaining maturities. The fair value estimates do
not include the benefits that result from low-cost funding provided by
the deposit liabilities compared to the cost of alternate sources of
funds.
Short-term borrowings: The carrying amounts for short-term borrowings
approximate fair value for amounts that mature in 90 days or less. The
fair value is estimated by discounting future cash flows using rates
currently offered.
Accrued interest: The carrying amounts of accrued interest receivable
and accrued interest payable approximate their fair values.
Off-balance sheet credit risk: The fair value of commitments is
estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the customer. For fixed-rate loan
commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair value of
letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date.
27
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE M - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The fair value estimates are presented for on-balance sheet financial
instruments without attempting to estimate the value of the bank's long-term
relationships with depositors and the benefit that results from low-cost funding
provided by deposit liabilities. In addition, significant assets which are not
considered financial instruments and are, therefore, not a part of the fair
value estimates include office properties and equipment.
NOTE N - GENERAL OPERATING EXPENSES
The following amounts comprise general operating expenses for the year
ended December 31:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Stationery and supplies $ 89,015 $ 42,817
Telephone 27,655 18,294
Professional and outside service fees 239,307 94,446
Advertising, marketing and public
relations 72,795 34,908
Professional dues 11,991 13,561
Insurance 23,685 32,854
Automobile 6,068 2,728
Other 67,401 36,989
------------ ------------
Totals $ 537,917 $ 276,597
============ ============
</TABLE>
28
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE O - CONDENSED FINANCIAL INFORMATION
The condensed financial information of Tarpon Coast Bancorp, Inc.
(parent company only) as of December 31, 1999 and 1998 and for the years ended
December 31, 1999 and 1998 and the period from May 1, 1997 (date of inception)
to December 31, 1997, is as follows:
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31
----------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Assets:
Investment in and indebtedness of
subsidiary, at equity $ 6,070,110 $ 6,978,456
Cash and due from banks 3,053,415 2,771,417
Premises and equipment 0 392,920
Other assets 1,254 33
------------ ------------
$ 9,124,779 $ 10,142,826
============ ============
Liabilities:
Accrued expenses and other liabilities $ 0 $ 1,372
Advances from organizers 0 0
Stockholders' equity:
Preferred stock 0 0
Common stock 11,821 11,821
Additional paid-in capital 10,940,915 10,940,915
Accumulated deficit (1,638,175) (824,268)
Accumulated other comprehensive income (loss) (189,782) 12,986
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,124,779 10,141,454
------------ ------------
$ 9,124,779 $ 10,142,826
============ ============
</TABLE>
29
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE O - CONDENSED FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
1999 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
Income:
Interest on indebtedness of
Tarpon Coast National Bank $ 0 $ 56,361 $ 0
Interest on investment
securities and other 122,527 165,393 0
----------- --------- ---------
TOTAL INCOME 122,527 221,754 0
----------- --------- ---------
Expenses:
Salaries and employee benefits 0 0 98,000
General operating 30,856 11,492 72,825
----------- --------- ---------
TOTAL EXPENSES 30,856 11,492 170,825
----------- --------- ---------
INCOME (LOSS) FROM OPERATIONS
BEFORE INCOME TAX AND EQUITY IN
UNDISTRIBUTED NET LOSS OF SUBSIDIARY 91,671 210,262 (170,825)
Income taxes 0 0 0
----------- --------- ---------
INCOME (LOSS) BEFORE EQUITY IN
UNDISTRIBUTED NET LOSS OF SUBSIDIARY 91,671 210,262 (170,825)
Equity in undistributed net loss
of subsidiary (905,578) (863,705) 0
----------- --------- ---------
NET LOSS (813,907) (653,443) (170,825)
Accumulated deficit:
Beginning of period (824,268) (170,825) 0
----------- --------- ---------
End of period $(1,638,175) $(824,268) $(170,825)
=========== ========= =========
</TABLE>
30
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE O - CONDENSED FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (813,907) $ (653,443) $(170,825)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Equity in undistributed net
loss of subsidiary 905,578 863,705 0
Depreciation of premises and
equipment 0 0 962
(Increase) decrease in other
assets (1,221) 74,120 (74,153)
Increase (decrease) in accrued
expenses and other liabilities (1,372) (47,391) 48,763
----------- ------------ ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 89,078 236,991 (195,253)
----------- ------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary banks (200,000) (7,733,135) 0
Purchases of premises and equipment 0 (392,920) (97,002)
Sale of premises and equipment 392,920 0 0
----------- ------------ ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 192,920 (8,126,055) (97,002)
----------- ------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of
common stock 0 10,630,251 1,000
Proceeds from (payments on)
organizer advances 0 (44,350) 365,835
----------- ------------ ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 0 10,585,901 366,835
----------- ------------ ---------
INCREASE IN CASH AND CASH EQUIVALENTS 281,998 2,696,837 74,580
Cash and cash equivalents:
Beginning of period 2,771,417 74,580 0
----------- ------------ ---------
End of period $ 3,053,415 $ 2,771,417 $ 74,580
=========== ============ =========
</TABLE>
31
<PAGE> 34
Board of Directors and Stockholders
of Tarpon Coast Bancorp, Inc.
Naples, Florida
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of Tarpon
Coast Bancorp, Inc., and its subsidiary Tarpon Coast National Bank
(collectively, the Company) as of December 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the two years in the period ended December 31, 1999 and the
period from May 1, 1997 (date of inception) to December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Tarpon Coast Bancorp, Inc. and subsidiary as of December 31, 1999 and 1998 and
the consolidated results of their operations and their consolidated cash flows
for each of the two years in the period ended December 31, 1999 and the period
from May 1, 1997 (date of inception) to December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Hill, Barth & King LLC
----------------------------
Certified Public Accountants
January 19, 2000
Naples, Florida
32
<PAGE> 35
CORPORATE INFORMATION
DIRECTORS
FOR THE COMPANY AND THE BANK:
<TABLE>
<S> <C> <C>
LEWIS S. ALBERT MARK O. ASPERILLA, M.D. JAMES R. BAKER
Chairman & Chief Executive Officer Practicing Physician President
Tarpon Coast Bancorp, Inc. & J&J Baker Enterprises, Inc.
Tarpon Coast National Bank
BILLIE A. BARGER JAMES C. BROWN GERALD P. FLAGEL
President President Certified Public Accountant
Bar-Ton of Pinellas, Inc. Miami-Valley Concrete, Inc. Gerald P. Flagel, P.A.
GINA D. HAHN TODD H. KATZ LARRY A. TENBUSCH
Vice-President Vice-Chairman & President President
Jewel Equities, Inc. Tarpon Coast Bancorp, Inc. & Tenbusch Construction, Inc.
Tarpon Coast National Bank
FOR THE BANK:
JAMES W. HERSTON WILLIAM A. HOLT, D.O.
President & CEO Practicing Physician & President
Herston Engineering Services, Inc. Inter-Medic Health Center
</TABLE>
OFFICERS FOR THE COMPANY AND THE BANK
<TABLE>
<S> <C> <C>
LEWIS S. ALBERT TODD H. KATZ GEORGE E.CLINE
Chairman & Vice-Chairman Senior Vice-President
Chief Executive Officer & President & Chief Financial Officer
for the Company and the Bank for the Company and the Bank for the Company and the Bank
MICHAEL T. EZZELL TERRY L. MILLER JOHN J. PAPPA
Senior Vice-President & Senior Vice-President Assistant Vice-President
Senior Lending Officer & Branch Executive & Lending Officer
for the Bank for the Bank for the Bank
SIMON L. DENOVA KATRINA A. TOWNS
Community Lending Officer Personal Banking Officer
for the Bank for the Bank
CORPORATE COUNSEL EXECUTIVE OFFICE TRANSFER AGENT
John P. Greeley, Esq. 1490 Tamiami Trail & REGISTRAR
Smith, Mackinnon, Greeley, Port Charlotte, Florida 33948 American Stock Transfer & Trust Co.
Bowdoin & Edwards, P.A. Phone 941-629-8111 6201 15th Avenue
255 South Orange Avenue Brooklyn, New York 11219
Suite 800 INDEPENDENT ACCOUNTANTS
Orlando, Florida 32801 Hill, Barth & King LLC
3777 Tamiami Trail North
Naples, Florida 34103
</TABLE>
33
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Tarpon Coast National Bank, Port Charlotte, Charlotte County, Florida Organized
under the laws of the United States.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,224,990
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,154,506
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 29,390,411
<ALLOWANCE> 454,576
<TOTAL-ASSETS> 44,103,663
<DEPOSITS> 29,484,727
<SHORT-TERM> 5,309,717
<LIABILITIES-OTHER> 184,440
<LONG-TERM> 0
0
0
<COMMON> 11,821
<OTHER-SE> 9,112,958
<TOTAL-LIABILITIES-AND-EQUITY> 44,103,663
<INTEREST-LOAN> 1,418,542
<INTEREST-INVEST> 572,014
<INTEREST-OTHER> 172,964
<INTEREST-TOTAL> 2,163,520
<INTEREST-DEPOSIT> 840,979
<INTEREST-EXPENSE> 948,095
<INTEREST-INCOME-NET> 1,215,425
<LOAN-LOSSES> 350,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,763,056
<INCOME-PRETAX> (813,907)
<INCOME-PRE-EXTRAORDINARY> (813,907)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (813,907)
<EPS-BASIC> (0.69)
<EPS-DILUTED> (0.69)
<YIELD-ACTUAL> 7.14
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 154,000
<CHARGE-OFFS> 49,456
<RECOVERIES> 32
<ALLOWANCE-CLOSE> 454,576
<ALLOWANCE-DOMESTIC> 454,576
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
